Posted by Fred Lake

Unemployment Compensation

Unemployment Compensation

What is unemployment compensation?

The state pays unemployment benefits to unemployed people who have lost their jobs due to retrenchments or layoffs. It aims to provide a source of income for the unemployed until they find a job. To be eligible, certain criteria must be met, such as working for a specified minimum period, and actively seeking employment. Unemployment benefits, usually provided by an unemployment check or direct deposit, provide partial replacement of income for a defined period or until the worker finds a job, regardless of the previous situation. It is also called "unemployment insurance" or "unemployment benefits."


Key Points to Note

  • The benefit is generally paid by unemployment check or direct deposit.

  • Unemployment benefit is a benefit paid to people who have recently lost their job through no fault of their own (dismissals, termination of a contract, etc.)

  • Unemployment benefits are usually calculated as a percentage of the claimant's average salary over a recent period of 52 weeks/ 1 year.


Unemployment Compensation History

The first unemployment benefit system was introduced in Britain by the National Insurance Act of 1911 under the leadership of the Liberal Party of H.H. Asquith. The measures aim to contain the growing presence of the Labor Party among the country's workforce. The National Insurance Act provided the British working classes with a contributory health and unemployment insurance system. However, this only applies to employees. Employee families and non-wage income must have other sources of support. Communists, who believed such insurance would prevent workers from starting a revolution, criticized the advantage, but employers and conservatives saw it as a "necessary evil."

The UK unemployment benefit scheme was actuarially based and funded by a fixed amount paid by workers, employers, and taxpayers. However, benefits were limited to specific industries that tended to have more volatile job requirements, such as shipbuilding, and did not include any dependents. After a week of unemployment, the worker could receive seven shillings per week up to 15 weeks per year. In 1913, around 2.5 million people were insured under the UK unemployment insurance scheme.

In the United States, unemployment benefits began at the state level when Wisconsin passed it in 1932 to ease the Great Depression's effects. In 1935, President Franklin D. Roosevelt signed the Social Security Act and promulgated it across the country. Initially, employers with fewer than eight employees were exempt from coverage. This number fell to four in 1954 and one in 1970

In Canada, the plan is called "Employment Insurance (EI)" and funded by employers and employees' contributions. The first national unemployment system in Canada was established in 1940 by the Unemployment Insurance Act, fueled by the Great Depression's effects. The law was extended and liberalized in 1971 and finally replaced in 1996 by the Employment Insurance Act, which changed the program's name to emphasize that it intends to promote employment rather than support unemployment.


Understanding Unemployment Benefits

Unemployment benefits are paid by many developed countries and some developing economies. In the United States, the unemployment insurance system is administered jointly by the federal government and each state government. Benefits are based on a percentage of a worker's average salary over a recent 52-week period, and their calculation may vary by state.

Benefits are typically paid for by state governments, largely funded by employers' state and federal taxes. Most states offer benefits for 26 weeks, although this varies from state to state and can range from 12 to 31 weeks. Extensions are possible during periods of high unemployment.


Requirements For Unemployment Compensation

As mentioned, the federal government and the states administer unemployment insurance in the United States. Requirements vary by state as to how benefits are determined. 

To be eligible in New York, for example, in 2020, you must have worked and received salaries in two calendar quarters, received at least $ 2,600 in a calendar quarter, and the total salary paid must be at least 1.5 times the amount. The minimum benefit is $ 104 per week. The maximum benefit is $ 504 per week. 

Many other states waive the seven-day waiting period for unemployment compensation due to the coronavirus (COVID -19).


New unemployment programs under the CARES Acts

On March 27, 2020, President Trump passed a $ 2 trillion emergency coronavirus stimulus package called the CARES Act. This expands the unemployment benefit through different initiatives, namely, The Federal Pandemic Unemployment Compensation Program, the Pandemic Emergency Unemployment Compensation program, and the Pandemic Unemployment Assistance Program. Here's a quick summary of how it works:

  • Federal Pandemic Unemployment Compensation (FPUC) provides a federal benefit of $ 600 per week.

  • Pandemic Emergency Unemployment Benefit (PEUC) extends benefits for an additional 13 weeks after regular unemployment benefits end.

  • Pandemic Unemployment Assistance (PUA) extends benefits to freelancers, the self-employed, and independent contractors.


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Fred Lake
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